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JLL Pittsburgh Office Insight - Q3 2015
1. Vacancy trends
Source: JLL Research
Rent trends
Source: JLL Research
Construction trends
Source: JLL Research
Corporate consolidations will place upward pressure on vacancy rates
Tenant demand has been mixed over the last year as some industries have
experienced contractions, namely finance and energy, while others have
recorded expansion, namely science and technology. The net result has been
positive though, with the region recording more than 300,000 square feet of net
absorption year-to-date. The downtown office market has been the primary
beneficiary of demand gains, with vacancy decreasing 1.4 percentage points
year-over-year to 11.8 percent. However, headwinds are on the horizon as a
number of corporate consolidations set to transpire over the next three years will
place upward pressure on vacancy rates across the metro.
Rents are appreciating across classes and submarkets
Office landlords in Pittsburgh have enjoyed sustained rent growth over the last
several years. Rent gains traversed product class and geography as landlords
held leverage and market fundamentals tightened. The average full service
asking rent for the metro was recorded at $22.26 per square foot at the end of
the third quarter, an increase of 3.3 percent year-over-year. Rent gains in
Pittsburgh have surpassed those recorded in the peer markets of Cleveland,
Columbus, Philadelphia and Baltimore. Over the coming year, Class A rents are
projected to appreciate further while Class B asking rents are forecasted to hold
firm as vacancy increases and negotiating leverage shifts.
Office construction continues at a strong clip
Office construction in Pittsburgh has continued on at robust levels over the last
four years. Tenant demand has held steady with supply gains and as a result,
vacancy continues to hover in the mid-teens. Currently 948,000 square feet of
office product is under construction with roughly 500,000 square feet scheduled
to break ground in the next year. The latest project to be announced was by
Oxford Development Company, which plans to construct a 105,000-square-foot
riverfront building for Burns White LLC at its 3 Crossings development in the
Strip District. Burns White, which signed 15-year lease with Oxford, will initially
occupy 80,000 square feet in the office building.
Consolidations set to generate market turbulence
2,257
748,000
1,395,000
429,000
519,000
268,000
-
1,000,000
2,000,000
2014 2015 2016 2017
Completions Planned deliveries
Office Insight
Pittsburgh | Q3 2015
49,423,314
Total inventory (s.f.)
57,611
Q3 2015 net absorption (s.f.)
$22.22
Direct average asking rent
948,000
Total under construction (s.f.)
14.1%
Total vacancy
332,878
YTD net absorption (s.f.)
3.3%
12-month rent growth
63.2%
Total preleased
10%
15%
20%
2011 2012 2013 2014 YTD 2015
Suburban submarkets CBD & Fringe
$18
$22
$26
2011 2012 2013 2014 YTD 2015
Class A Class B
(s.f.)